Hey everyone! Today I have a post for my debt payoff series. Many of you have e-mailed me and said that you have LOVED this debt series because you are able to hear about so many different views of debt payoff stories. Glad I can keep this series alive and going! Be sure to come back tomorrow for a $40 Novica giveaway.
Hi everyone! My name is Justin and I write at The Frugal Path. I’m excited to share my path into debt today.
For the past five years my wife and I have been struggling to pay down our consumer debt. While it has always been below the amount carried by the average American household, $15,000, it still acts like a parachute on the back of a race car and slows our progress to financial freedom.
The Money Pit
As a child The Money Pit, staring Tom Hanks and Shelley Long was one of my favorite movies. The movie opens with a couple purchasing a beautiful old house. It’s perfect and doesn’t need any work, or so they’ve been led to believe. However, the sweet couple had been swindled and the house needs a complete overhaul. This isn’t a small 1,000 square foot starter home, like mine. It’s a big beautiful country house with every inch in need of repairs.
A similar story unfolded when we purchased our very first house in 2007. The housing market was softening and we thought our house was a steal of a deal, (If I only knew). It needed a lot of work. Before moving in we replaced the furnace/AC, windows, garage door and entry doors. Oh, there was also a small mold problem in the attic and we had to tear out the finished basement for the same reason (only on a much bigger scale).
We were unaware of many of these issues when we put our offer in. Most of the problems were discovered during the home inspection, but our inspector and agent told us that we were getting a good deal. They also knew we had a decent chunk saved up for the down payment and talked us into using the money to fix up the house instead.
Our gut was telling us to back out. In fact, the words came out of my mouth a few times. However, the inspector and agent “assured us” that the house was still a deal and we could ask for a reduced price. So we listened. If you’re ever purchasing a home, go with your gut feeling after the inspection. You may end up losing the inspection fee, but it could save you a lot of money.
We weren’t living above our means.
Consumer debt can be pretty vile and toxic to your financial situation. With high interest rates and no tax breaks associated with it, credit card debt has very few virtues and plenty of pitfalls.
Every so often I would watch a talk show or personal finance pundent on television interviewing families deep in debt. Often these people live far beyond their means with weekly shopping sprees, extravagant vacations and many times their houses were four or five times the size of mine with mortgages to match.
Our debt wasn’t caused by an extravagant lifestyle. It came from a home in need of repairs. Surely we were better off financially than these people.
Or were we?
I had to face a simple fact, we were in denial about our financial situation. When it came to everyday expenses, we were living within our means. But we didn’t plan for the future. When our cars unexpectedly broke down we charged it. When the roof of our lovely house began leaking two years ago did we pay with plastic or paper? Plastic please.
Living beneath your means doesn’t mean just ensuring that you have enough money to cover everyday expenses. It also requires a plan and a rainy day fund for when emergencies rear their head. If you can afford these costs on top your regular living expenses, then you really are spending less than you make.
You Need a Plan
It has taken us far longer than it should have to pay off our debt. Since 2008, every single extra dollar that we had was thrown at the debt and it was rapidly shrinking. In fact, we were on track to have the debt gone but a lack of planning continuously threw a wrench in our plans. There were several car repairs, the new roof and, well life in general kept getting in the way.
From the tail end of 2011 thru September of 2012 we had basically given up. It seemed as though we’d never get out from under our debt. I finally pulled myself out of despair and began blogging about our financial situation. It was a way to stay motivated and learn new methods for managing our money. We began putting some of these techniques to work and slowly increased side income.
Our path to financial independence is looking possible, it’s just a matter of taking the first steps. We learned a valuable lesson from our roof and no longer throw every dollar towards the debt. We now allocate a quarter of our extra cash towards an emergency fund. It may take a bit longer to pay down the debt, but if Murphy visits us we’ll have an account full of cash to rub into his face.
What obstacles have you faced with your personal finances?
How did you kick Murphy to the curb?